A Theory of Recommendations

Jean-Michel Benkert and Armin Schmutzler

No 19410, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates the value of recommendations for disseminating economic information, with a focus on frictions resulting from preference heterogeneity. We consider Bayesian expected-payoff maximizers who receive non-strategic recommendations by other consumers. The paper provides conditions under which different consumer types accept these recommendations. Moreover, we assess the overall value of a recommendation system and the determinants of that value. Our analysis highlights the importance of disentangling objective information from subjective preferences when designing value-maximizing recommendation systems.

Keywords: Optimal; design (search for similar items in EconPapers)
JEL-codes: D02 D47 D83 (search for similar items in EconPapers)
Date: 2024-08
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Working Paper: A theory of recommendations (2024)
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